Set Up a Cold Storage Chain

The cold storage industry is picking up pace in India. Read on for pointers to be part of this opportunity.

The cold storage sector in our country is still in its nascent stage with many hindrances, since India is a
geographically big and climatically diversified country. The cold storages existing today are largely single
product cold storages. Most of them are localized and lack expertise in professional management.
However, with the globalization of the economy, slowly the industry is shifting from multi-level (manual)
cold storages to single level cold storages (automated), from single point (one location) cold storage to
multi-point (multi location) cold storage, from single product cold storage to multi-product cold storage,
and from just storage to supply chain management.
However, transformation in this sector has just begun and has miles to go before it matches
international standards. The industry is still knitting its way to meet the concept of farm to fork. New
cold storage setups are the need of the hour as more than 30 percent of vegetables and fruits are
wasted due to lack of cold chain facilities across the country. A lot of facilities like fruit ripening
chambers, pre-cooling units, controlled atmospheric cold storages, cold storages, pack houses,
refrigerated vans are coming up and the government is also going hand in glove with entrepreneurs to
grow this robust and important industry of the Indian economy.
Investment required
Cold storage project has been classified into Infrastructure Category in the recent Union Budget this
year. Being a capital intensive project, it requires heavy investment in fixed assets like plant and
machinery, building, insulation and panels. Depending on the size of the project and design of the
infrastructure the Capex is derived. Typically, a traditional cold storage of multi-tier walk in with a
capacity of 6,000 tons would cost Rs.5 crore, excluding land.
The Capex includes building which includes civil structure, EPS and PUF panels, refrigeration system,
conveyor system, generators and electrical system. If its a new-age single floor rack-supported cold
storage facility, then the Capex is little higher. For the same 6,000 ton cold storage it would cost Rs.7
crore, which includes civil structures, EPS and PUF panels, refrigeration system, generators, electrical,
MS racks, fork lifts and pallet trucks and cranes. Typically, a pre-cooling unit with an 8 ton/per shift, pre-
cooling capacity and 80 ton cold storage and grading and sorting hall would cost Rs.2 crore. For a small
cold storage company, the best place to source funding is from a bank. VCs and PE come in to the foray
if the size of the cold storage is big, to begin with at Rs.25 crore.
Human resources required
You will need individual teams for technical, administration and operations. Technical team would run
the cold storage plant and maintain the desired temperature levels and ensure that the product is
preserved safe. Administration staff will take care of invoicing, inventory tracking, banking and
accounting. Plant operations team will physically handle stock movement and inventory management.
Mostly, cold storage equipment is run on ammonia or Freon Gas in India. Refrigeration system includes
compressors, air handling units, humidity controllers. Typically, you will require at least one acre of land
to set up a cold storage facility and strategic location is important in setting up a cold storage. It is
advisable to have a facility near an agricultural/market yard or orchards for best logistical advantage.
Regulations
To set up a cold storage in India, broadly, you will require various government permissions from
Pollution Control Board (although cold storage unit is designed for a pollute-free environment),
Factories Department, local bodies like Panchayat or municipality, Fire Department and common
taxation requirements like PAN, TIN, DIN and VAT.
Competitive landscape
There is stiff competition in this segment with many standalone cold storages in India but very few cold
storage chains. The government has addressed the need of this sector and is supporting the industry
with capital incentives. There has been a decent growth of cold storage industry in India and at the
moment supply demand gap is maintained. As a first generation entrepreneur, to beat competition, you
will need to be innovative about your services like automation in handling, inventory tracking and online
tracking of temperature. Such value-added services would help you counter competition. Also, there are
growing customer needs in administration, dedicating chambers, online inventory, faster operations,
24/7 operations, hygiene, complete automation in handling stocks, maintaining the desired temperature
and humidity accurately. You could look at building your own brand office with a bouquet of value-
added services as mentioned. Make sure you analyze and research type of products in your region.
Publicity and etiquette
For the first couple of years, word-of-mouth would be the best publicity for a new company. MNCs in
India today demand world-class infrastructure with complete automation in handling the products,
online temperature and inventory management system. You will need to take lot of precautionary
measures while handling various clients under one roof, like physically demarking the space allotted to
each company. This business etiquette is important to keep trade secrets of one client from another.
Safety
While designing a cold storage facility, it is essential to follow the fire and safety policies by installing fire
alarm systems and fire extinguishers, especially if you have a multi-tier cold storage.
Associations
It is essential for your firm to become a part of Cold Storage Association in your state. The presence of
these associations is felt especially during representations to the government or CII. An associations
voice is better heard in a community than an individual voice.

Status of Cold Storage and its potential in India
The estimated annual production of fruits and vegetables in the country is about 130 million tonnes
accounting to 18 per cent of our agricultural output. Moreover, the lack of cold storage and cold chain
facilities are becoming major bottlenecks in tapping the vast potential. The cold storage facilities now
available are mostly for a single commodity like potato, orange, apple, grapes, pomegranates, flowers,
etc. which results in poor capacity utilization.

Commodity wise distribution of cold storage capacity
Commodity Units Capacity (lakh tonnes)
Potato 2,012 92.82
Multi purpose 447 7.63
Fruits and Vegetables
198 1.07
Meat 23 0.09
Fish 360 0.73
Meat & Fish 30 0.15
Milk & Dairy Products 272 0.68
Others 101 0.36

Out of the above 3443 cold storage units, 2975 are in private sector, 303 are in co operative sector and
the rest are in public sector.

As per a retailer, "India's vast produce rot due to lack of cold storage resulting in increased cost of the
same produce as they die before they could even enter the market".

Super market products
Some super market products from the trusted cold storage company Carrier Airconditioning &
Refrigeration Ltd are multideck, semi multideck, servicecase, service counter, iron freezer and
chiller freezer combo.


Why cold storage is not at par as its foreign counter part?
Rene Bach Larsen, MD of GEODIS Overseas Pvt Ltd. feels that consumers in India is still not quality
concious and thus not willing to pay the added cost of refrigeration. Moreover, India still lacks the
correct startegising of cold storage. For example, cold storage are conspicious by their absence in
Airports that are centres of whirring activities. Moreover, India is a direct producer of perishable goods
so the consumption is also direct unlike in abroad that survives on imports.


Why foreign investors give cold shoulder to cold storage?
Although, there is a lot of potential in this sector yet the foreign investor is shying away from taking the
risk. Rene cites the reasons," It is primarily lack of infrastructure like road, proper distribution chain and
the high cost of setting up a cold storage unit. He also feels that barring a few Indians, others are not
willing to pay high price for quality goods as is in abroad where produce are highly outsourced and
hence demand more cold storage .

Even Vineet Kanojia's, GM, Safexpress, take on this problem is not different from Rene,as he believes
that cold storage is still in a nascent stage and thus evolving. The viability has to come both from
Consumer side and Service provider's side. He concludes that, "May be in the future we will see some
improvement as the government is promising lot of aid to this sector".


Conclusion:
In India, less than 2 per cent of the fruits and vegetables produced are processed as against 65 per cent
in the US and 70 per cent in Brazil, as per farm ministry estimates.

Moreover, wastage of fruits and vegetables due to poor post-harvest management and lack of cold
chain facilities have been estimated to cost up to Rs 500 billion annually, as reported in the fifth and
final report of the National Commission of Farmers.
Sensing the large gap and to provide solution, Finance Minister Pranab Mukherjee announced a number
of schemes to attract investment in this sector as he wants to bring down "difference between the farm
gate prices, wholesale prices and retail prices. He also said that, "External Commercial Borrowings will
henceforth be available for cold storage or cold room facility, including for farm level pre-cooling, for
preservation or storage of agricultural and allied produce, marine products and meat.

And to further ease the problem, he has exempted customs duty on crucial refrigeration units needed to
produce refrigerated vehicles. He also allows extending of hiring private warehouses by state run Food
Corp to seven years from five years to meet the storage deficit.

Saurabh Goyal of Thinklink services that specialises in investment advisory, consulting and project
management in the supply chain and logistics sector including cold chains, informs that, the potential
for cold chain development in India is huge, rate of food processing in India is low and is growing, waste
in the perishable F&B category is a key point that needs to be addressed, and there are a number of
other sectors apart from food which also rely on reliable cold chain development, expected market size
for cold chain services in India is expected to reach US$ 10 billion in the next 5 years.

Advice to new investors
After weighing the pros and cons, the advice from the Industry for those who would like to enter into
this sector is, "Plan your network well and invest with a long term view in scalable systems and
technology, if possible work with local partners".

India's Food Industry on a Higher Growth Path
I recognize that there are a number of constraints both in the forward and backward linkages in
the sector. But if we can get our act together, as we must, India can emerge as a leader in the global
food processing industry.(Dr. Manmohan Singh, Honorable Prime Minister of India).
Buoyed by a favourable policy environment and the demand-push impact of a young consuming class
with growing disposable incomes, India undoubtedly offers a huge investment opportunity in the food
and agribusiness sector, and is set to become a world leader in food business.
According to the recent FICCI- E&Y report, food is the biggest consumption category in India with 31%
of the consumers wallet expenditure; and by 2015, the Indian food industry is expected to reach Euro
181 billion from the current level of Euro 127 billion by 2015, and Euro 223 billion by 2020, throwing
up huge opportunities for investment across the entire value chain. With a population of more than
one billion individuals and food constituting a major part of the consumers budget, this sector has a
prominence next to no other businesses in the country. Moreover the importance of this sector to
Indias economy becomes all the more relevant, considering the fact that this sector continued to
perform well, despite fall in GDP number and poor performance by many other industries, during
recession in 2008-09.
Food processing industry in India is increasingly seen as a potential source for driving the rural
economy as it brings about synergy between the consumer, industry and agriculture. A well developed
food processing industry is expected to increase farm gate prices, reduce wastages, ensure value
addition, promote crop diversification, generate employment opportunities as well as export earnings.
This sector is also capable of addressing critical issues of food security and providing wholesome,
nutritious food to our people.
The government on its part has initiated extensive reforms to remove legislative barriers and
introduce facilitatory measures to catalyse private sector activity in food and agribusiness sector.
Some of the key measures undertaken by the Government include: amendment of the Agriculture
Produce Marketing Committee Act, rationalization of food laws, implementation of the National
Horticulture mission etc. The government has also outlined a plan to address the low scale of
processing activity in the country by setting up the mega food parks, with integrated facilities for
procurement, processing, storage and transport. To promote private sector activity and invite foreign
investments in the sector the Government allows 100% FDI in the food processing & cold chain
infrastructure. The recent budget has announced several policy measures, especially for the cold
chain infrastructure, to encourage private sector activity across the entire value chain.
In order to raise Indias processed-product quality to international standards, to address health
concerns and harness the export opportunity, the government is establishing a network of quality
control and testing laboratories and testing centers across India, supported by R&D through research
institutes.
Opportunities:
The processed food market in India is at an early stage with low penetration and high potential. This is
especially true in the case of fruits & vegetables, where the processing level in India is a mere 2.2% as
compared to 65% in the US and 23% in China.
It is important to understand that as much as 70% of the current food spending by the Indian
consumer is on agri-products. Additionally, two-thirds of this spending is on primary and secondary
processed products. In agri-products, fruits and vegetables (F&V) is the largest consumption category
and accounts for over 50% of the total consumption. While, milk & milk products, meat and marine
products, contribute the remaining 30% of consumer food spending, they have been growing at a
faster rate as compared to other agri products.
The sectors with the considerable growth potential for processing are a) Dairy (Ethnic Indian
products clarified butter, khoya, paneer, curd and Western dairy products cheese, fresh fruit
yogurts, packaged, homogenized milk, flavored milk, frozen desserts spreadable fat, processed milk),
b) Fruits and Vegetables(potato chips, jams, jellies and pastes), c) Beverages (alcoholic & non
alcoholic beverages - wine & juices), d)Confectionary, e) Meat & poultry; and f) Marine base
products. Products that have growing demand in the export market are pickles, chutneys, fruit pulp,
canned fruits and vegetables, concentrated pulps and juices, dehydrated vegetables and frozen fruits
and vegetables along with processed animal and marine based products.
In addition to this the processed food sector offers immense investment opportunities across the
entire food vale chain such as:
Warehousing and development of cold chain,
Cargo handling facilities,
Packaging Machinery and Technology
Food processing Machinery & Technology
Food Safety and quality improvement systems
Lab Infrastructure
Dairy processing
Fruits & Vegetable Processing
Setting up Modern Abattoirs
Challenges:
It has been repeatedly emphasized time and again that this sector offers immense opportunities
across the entire value chain; however, we still have some way to go before we are able to grab these
opportunities. Even today we are grappling with issues of quality and quantity of raw produce,
fragmentation of land holdings, constraints in land availability and low labor productivity with slow
adoption of technology. On the Infrastructure front, we have supply chain and wastage related
problems and low levels of value addition etc. The other issues of concern, holding this sector back are
impaired access to credit; inconsistency in state and central polices, which requires all of us, at the
Center and at the State level to work as one single cohesive unit.
Policy Intervention needed
Whilst, the Government initiatives aimed at bringing about regulatory reforms and infrastructure
development in agriculture marketing and private sector investment in infrastructure creation have
created the much desired vibrancy in the sector in recent times. However, there is paramount need to
take big ticket measures to catapult the growth of food processing sector and take to the high growth
trajectory.
Second Green Revolution in Agriculture
The first Green Revolution has run its course. Cereal yields are rising very slowly, water tables are
plunging, and agricultural growth is also low. India needs a second Green Revolution in India which
takes rice and wheat cultivators beyond the grain production stage to agro-food processing and gives
value addition. This high end initiative requires commitment from all the stakeholders in the food
value chain.
Comprehensive National Level policy on Food Processing
The comprehensive policy will ensure private sector investment in infrastructure development,
increasing farm productivity and up gradation of quality and give further impetus to the food
processing sector.
Inter Ministerial Working Group to Address the Issues
The Government should set up Inter Ministerial Working Group (IMWG) under the leadership of
Ministry of Food Processing to look at comprehensively addressing various issues that are holding this
sector back.
Implementation of GST as per the set deadline
Government should ensure timely implementation of GST to provide incentive to the food processing
sector, while removing subjectivity in treatment and classification of various food products. Some
packaged foods which are of daily necessities, be classified at lower rate of taxation.
Implementation of Food Safety and Standards Act (FSS Act)
Government should ensure the enforcement of the Food Safety and Standards Act in spirit including
increasing radically the number of trained inspectors and state of the art lab facilities.
Sectoral Schemes
The Ministry of Food Processing Industry (MoFPI) has announced the Integrated Cold Chain (ICC)
Scheme for Cold Chain, Value Addition & Preservation Infrastructure for faster growth of the cold chain
industry. Lack of adequate infrastructure for fruits and vegetables leads to wastage and value loss of
approximately Rs.33,000 Crs. every year. To avert this and support the growing horticulture and food
processing industry, the Ministry aims to have 45 lakh tones of cold storage capacity and over 3000
reefer trucks for domestic transportation of fresh produce by 2012.
ICC Scheme will enable excellent infrastructure facilities for cold chain, value addition and the
preservation industry along the supply chain from the farm to market by organizing them into clusters.
To do this, the government has offered a subsidy of Rs.10 Crs. for project development. Individuals or
groups of entrepreneurs with business interests in cold chain, supply chain, warehousing and logistics
can benefit from this.
Implementation of all the Provisions of Model Act across all States/UTs.
One of major issues holding the sector back is the non implementation of all the provisions of the
Model Act across all the sates/UTs. The Government should ensure speedily implementation of all the
provisions of the act.
Credit Access to Food Processing Industries
The Government should establish a National bank, on the lines of NABARD, to lend credit to food
processing industries. This will ensure speedily disbursals of the funds to food processing sector,
always grappling, with the issue of lack of access to credit from banks.
All Industry incentives under single window clearance.
Government should bring all Industry incentive policies under single window clearance. A nodal body
under Food processing Industry with single window clearance of all issues, must be created so that no
separate rules and regulations comes from different ministries to impact the sector without due
deliberations.
Conclusion

Indian food industry is making an important mark in the global food arena as a large producer and
exporter of agro food products. At present small players dominate the Indian food processing
industry. The industry needs larger companies, which have financial muscle for establishing a large
market network and also to invest in technology. The favorable policy environment and increasing
interest of corporate in agro food processing sector, augurs well for India, which is well on track to
become one of the leading food nations of the world.

Owing to its credentials, MoFPI has appointed Magus Consulting Pvt. Ltd. as the PMC for ensuring
smooth implementation of projects through every stage. Incorporated in 1954, Magus forayed into
providing Project Management Consultancy services in 2004 under the guidance of its current Director,
Mr. Mayur Suchak. The Group is today amongst Indias leading PMCs, offering concept to completion
services under one roof to a diverse set of clientele in Micro Infrastructure, Realty and various other
sectors.
Our Services
Creating linkages between MoFPI, developers, food processing entrepreneurs and farmers
Preparation of concept and feasibility reports including cluster-mapping, raw material
assessment, product mix, business plan, technical master plan, section design, etc.
Land acquisition
Assistance in requisite documentation to ensure release of GoI grant
Development approvals
Detailed engineering services including BOQ
Master planning and detailed designing services
Project marketing services
Unit management services which cover registration and liasoning services, project finance and
Government subsidies at unit level
Features of the Scheme
To avail financial assistance under this scheme, any two of the first three (a, b or c ) or stand-alone (d) is
eligible if set-up by the units:
Minimal Processing Centre at the farm level with facilities for weighing, sorting,grading waxing,
packing, pre-cooling, CA/MA cold storage, normal storage and IQF
Mobile pre-cooling vans and reefer trucks
Distribution hubs with CA / MA chambers / cold storage / variable humidity chambers, packing
facility, CIP fog treatment, IQF and blast freezing
Irradiation facility (Considering the functional nature of the irradiation facility, it can be treated
as a stand-alone component for availing the grant.)
Mandatories
The responsibility of execution, ownership and management of the Mega Food Park would vest
with a Special Purpose Vehicle (SPV) in which various related stakeholders would be the equity
holders
Each SPV would have at least 3 entrepreneurs / business units, which would be independent of
each other with no common directors
Anchor Promoter to be from the food processing industry
At least 26% of equity of the SPV should be held by food processor(s) within the SPV
The combined net worth of the shareholders of the SPV should not be less than Rs.50 Crs. with
food processor(s) having at least of Rs.10 Crs. of net worth
Minimum 50 acres land to be on the name of SPV, land area surrounded by agriculture and food
processing activities